A Framework for Strategic Analysis
Strategy formulation
Environmental
Analysis
Stakeholders
analysis
Strategy
congruence
Analysis
of R&C
Alternative
Strategies
Action plan
Execution
Strategy implementation
Monitoring
Feedback
Analyzing Resources & Capabilities
 The assets and resources of the firm
 Identifying organizational capabilities
 Selecting capabilities of strategic importance
 Stakeholder expectations
 Identify existing strategy
 Assess strategy fit & congruence
Resources
Tangible and intangible
Identify distinct resources
Resources as assets: the “capital” of
the firm
Customer
Capital
Human
Capital
Financial
Capital
Intellectual
Capital
Physical
Capital
Social
Capital
Assessing Assets and Resources
 Assess company’s assets and resources
relative to main competitors
 Distinct or same ?
 Unique and in-imitable, or easily imitated?
 Improving, or stable or eroding?
 You may consider more or less elaborate
schemes for evaluation
 E.g. a grading system
Tangible and intangible resources
 Tangible resources:
 Assets that can be quantified
 Intangibles are gaining in significance
 They are major sources of value

 T/I: from 70 : 30 before to 30 : 70 today
Accumulated over time
 Difficult to copy
 Embedded (the “genes” of the firm)
Financial Analysis for strategic
purposes
 Financial analysis is always important
 Need to evaluate current position and trends
 Using financial ratios as well as physical data
 But extracting the important trends
 Comparing with competitors, industry averages, or
historical evolution
 Comment on the financial position of the company
and draw strategic conclusions
Financial Analysis: an example
Ratio
Annual growth of sales
Annual growth of profit
Gross profit %
Net profit margin
Return on capital Employed
(ROCE)
Return on Equity (ROE)
Current Ratio
Quick Ratio
Gearing
R&D/Sales
SGA/Sales
Sales per Employee
Other ratios
2016 2017 2018 Trend
Comment
Identifying Organizational
Capabilities
Functional and Value Chain
approaches
A Hierarchy of Capabilities
Boundary
spanning
Cross functional
Broad functional
Activity related
Specialized
Single task
Individual Specialized Knowledge
Higher level Capabilities
 Cross functional
 E.g. new product development and launching
 Boundary spanning
 E.g. network of relations with…
Some companies are recognized for
some unique capabilities
FUNCTION
CAPABILITY
Financial management
Corporate
Management
MIS
R&D
Manufacturin
g
Design
Marketing
Sales &
Distribution
Strategic Control
Coordinating decentralized business units
Managing Acquisitions
Speed and responsiveness through rapid
information transfer
Research capability
Development of innovative new products
Efficient volume manufacturing
Continuous Improvement
Flexibility
Design Capability
Brand Management
Promoting reputation
Responsiveness to market trends
Sales Responsiveness
Efficiency and speed of distribution
Customer Service
EXEMPLARS
Exxon, Coca Cola, GE,
General Electric
Emerson Electric, GE
ABB, Shell
Nationsbank, ConAgra
American Airlines, LL Bean
Mereck, AT&T
Sony, 3M
Briggs & Stratton
Nucor, Motorola
Benetton
Apple, Swatch,
Procter & Gamble, PepsiCo
American Express
The Gap
Microsoft, Glaxo
Federal Express
Walt Disney
Support Activities
A Value Chain Approach
Firm Infrastructure
Human Recourse Management
Technology Development
Outbound
Inbound
Operations
Logistics
Logistics
Primary Activities
Source: M.E. Porter
Marketing Service
&Sales
Evaluating R & C along functions or
Value Chain: a plastics firm
Functions or
Value Chain
Operations
Sales/
Marketing
Similar to others
Easy to imitate
Unique
Difficult to imitate
Installations/ Machinery
Blue collar workers
Process know-how
Some experienced technicians log with
the company
Salesmen
Standard methods
Sensing of customer needs
Relations with customers
Finance
Credit worthiness
Banking connections
Listed in international stock markets
HR
Productivity
Turnover rates
Certain top class executives
Training
Ordinary fleet
Personnel
Dealing with variety of product types
Commercial exploitation
of incremental innovations
Production linked know-how of process
innovation
Logistics
R&D
The strategic importance of R & C
Unique resources and capabilities
a basis for competitive advantage
Evaluating Resources and Capabilities
Resources
Capabilities
Similar to others
Easy to imitate
Unique
Difficult to imitate
Assets and resources
similar to competitors,
or can be found in the
market
Accumulated assets
and resources which
competitors find
difficult to match
Ordinary capabilities,
typical or not
distinctive
 Simple, low- level
 Composite, highlevel
Capabilities that are
distinctive, costly to
imitate, with strategic
potential
 embedded in the
specific context
 work in combination
with others
Selecting Capabilities that count:
VRIO criteria
 VRIO Criteria: R & C must be
 Valuable
 Rare / unique
 In-imitable, costly to imitate
 Have organizational support, be protected
 Assessing strategic importance
 Overall importance for building sustainable
competitive
Or use selected areas in which
capabilities count (targeted search)
 E.g. John Kay argues that four types of
distinctive capabilities count:
 Architecture (of relations)
 Reputation
 Innovation
 Strategic Assets
 …and combinations of the four
Appraising the strategic importance
of R&C
10
Superfluous Strengths
Key Strengths
Zone of Irrelevance
Key Weaknesses
Relative
5
Strength
1
1
5
Strategic Importance
10
Appraising the capabilities of Int MBA
(illustrative only)
Superior
Key strengths
Superfluous
strengths
Relative Strength
6
3
4
Parity
7
10
5
Inconsequential
weaknesses
2
8
11
1
12
9
Key weaknesses
Deficient
Critically
important
Not important
Importance
C1 Alumni relations
C2 Student
placement
C3 Teaching
C4.Administration
C5 Course devlpmnt
C6 Student
recruitment
C7 Research
C8 Corporate
relations
C9 Marketing
C10 IT
C11 PR
C12 HRM
Is strategy based on unique R&C?
4. Develop strategy in relation to CA:
(a) fully exploiting unique R & C
(b) strengthening these R & C
3. Identify the changes required in the
organization in order to create competitive
advantage on the basis of the selected R&C
Strategy
Potential for
Sustainable
Competitive
Advantage
2. Assess which of these are unique and
difficult to imitable , or which may add
value
(VRIN criteria, ARIS)
Selection
1. Analyze resources and capabilities
R&C
Assessing resources and capabilities:
conclusion
 Which R&C are unique, or which capabilities
are distinct?
 Which of those are of strategic importance?
 Are they fully utilized in current strategy?
 Are they adequately protected?
 Can these capabilities be further developed?
Stakeholder Analysis
Expectations and Values
Stakeholder Analysis – key aspects
 Who are our stakeholders? What are their




expectations from the organization?
Who are the “key players”: with high interest for the
organization, and power to influence?
How satisfied are these from the current strategy?
How are the likely to react if they are dissatisfied
and how their reactions would affect us?
Concerning the proposed strategy how likely is it
that our key stakeholders will support both the
strategy itself and its implementation?
Stakeholder analysis: power- interest
matrix
Interest in the firm
Low
High
Key players
High
Power
Passive
Low
Stakeholder matrix
Yes
High
Power
Low
Expectations met?
No
Neutralise, buy them
Keep satisfied, use as off or try to meet
advocates
expectations
Low priority, but
monitor
Disclose info, care for
social desirability
Monitor, in particular
see that they do not
form coalitions with
other dissatisfied
stakeholders
Strategy “fit”
Strategy “Congruence”
with E – R – V
What is the current strategy?
 Formal strategy
 Competitive, overall and fuctional
 Stated (e.g. in MOST)
 Actual strategy
 Inferred from actions & behavior
 May not coincide with formal
Evaluating strategy fit or congruence
 Does it fit to changing environment


 exploiting opportunities, avoiding threats
Does it fit with resources and capabilities
 does it utilize unique R&C, builds on strengths, avoids weaknesses
Does it meet the expectations of key stakeholders
 Does it carry the commitment of employees , shareholders, key
players
 Is it internally consistent
 within MOST and down the organization, “rowing” in the same
direction
 Is the risk / benefit ratio acceptable
 Risk from misfit and stretch of resources